Second Life bank crash foretold financial crisis

MSNBC - Nov. 21, 2008, by Jeremy Hsu

A string of bank collapses prompted Alan Greenspan, U.S. economic guru and former head of the Federal Reserve, to admit last month that lending institutions could not always be trusted to regulate themselves. He could have taken a cue sooner by looking at the 2007 collapse of Ginko Financial, a virtual investment bank in the online game "Second Life."

Virtual economies in games such as "Second Life" and "EVE Online" may seem trivial, but they actually can provide real-life lessons on the patterns of free markets and unfettered capitalism. Researchers and self-described virtual economists have observed how virtual entrepreneurs establish themselves and compete, as well as how a lack of self-regulation can lead to dramatic banking failures, scams and even corporate espionage.

"I don't view 'Second Life' as a game," said Robert Bloomfield, an accounting researcher at Cornell University in Ithaca, New York. "I view it as a market space."

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